Pharmacoeconomics Refresher: The CVS $100k/QALY Announcement (Part 3)

Joey Mattingly, PharmD, MBA, currently serves as an assistant professor in the Department of Pharmacy Practice and Science at the University of Maryland School of Pharmacy, where he teaches business strategy to PharmD students and is a strategic consultant for the University of Maryland Medical Center. In addition to his work as a faculty member, he serves as Director of Operations for the PATIENTS Program and Principal for A & J Consulting, LLC. His primary research interests include cost-effectiveness, patient-centered outcomes, and health policy.

In this series, we have used the recent announcement by CVS Health regarding a strategy to lower drug prices as an example to review basic pharmacoeconomic principles. In Part 1, we focused on the incremental cost-effectiveness ratio (ICER) and a scenario using quality-adjusted life-years (QALYs) as the primary measure for effectiveness. In Part 2, we began to place the resulting ICER into context so it could be applied to making a decision recommendation. For Part 3, we are going to discuss various stakeholders and how each might view the results of decisions based off of pharmacoeconomic analyses.

Who are the stakeholders?
When it comes to making “managed care” decisions involving the treatment of one’s health, it is important that we consider several potential stakeholders:

Patients & Caregivers – The group that has the most at stake in a health decision is the actual patient (which includes the immediate family or caregiving persons involved). The term caregiver is often used when we think about patients who rely heavily on someone else as a proxy for decision making (children, persons with psychological disorders, elderly patients, etc.). Patient advocacy organizations are often included in this category and for this post I’m going to lump them in as well.

Clinicians – Our clinical experts are important to help guide the best possible treatment in terms of efficacy and safety. The clinicians help establish guidelines and best practices with the evidence available and in many cases serve as advocates for their patients.

Payers – The term “payer” is broadly used to encompass the private or government managed care entity that is responsible for the care of a population. This is often misleading as employers (especially in the United States), taxpayers, and the patients themselves are the ultimate payers for health services. The payer term in pharmacoeconomics typically just focuses on the managed care entity that handles the transaction to the provider of the clinical service. In the United States, payers are a mix of private for-profit companies, not-for-profit organizations, and government agencies (Medicare and Medicaid). These entities serve as an intermediary (often called a “Third Party”) attempting to balance the benefits provided with the costs to provide said benefits for the entire covered population they represent.

Pharmaceutical Manufacturers – In the context of pharmacoeconomics, the companies responsible for the research and development of new pharmacologic treatments for disease are considered important stakeholders as a managed care decision will ultimately determine whether or not they will recognize a return on their business investments.

Society? – I’m going to incorporate a generic “Society?” group (yes – question mark included), although it is really difficult to capture a societal perspective in an advisory board. From an economics standpoint, we frequently discuss the impact of a decision on society which may capture many indirect costs and benefits of a decision.

Now that we have identified a set of stakeholders, let’s walk through a few scenarios and discuss how each may be impacted.

Scenario A: Brand new (expensive and effective) drug is covered because it is cost-effective compared to the current standard of care for a subset of patients in our population (determined by our cost/QALY calculation <$100,000/QALY).
For the individual patients & caregivers impacted directly by the new treatment, the determination to include on the formulary means increased access to the therapy, as many patients may not be able to afford the treatment without the support of a third party payer. The benefits may include decreases in mortality or morbidity (remember that using the QALY incorporates both the length of life and the quality of life).

For the clinicians, inclusion on the formulary will hopefully make day-to-day operations a bit easier as their staff will be able to spend less time worried about patient access. If the formulary decision incorporates several managed care hurdles (step-therapy, prior authorization, etc.), then the clinicians may bear a bit more of the burden in terms of ensuring their patients have access to the new treatment.

For the payer, the decision to cover based on a <$100,000/QALY calculation only explains efficiency of the new treatment versus the old treatment. It says nothing about the impact on the overall budget for the health plan. In other words, the payer must estimate how much more the entity will spend on the new treatment compared to previous years and will need to make adjustments to ensure they have the funds. This could be done in a few ways. First, the payer could eliminate payment for other services in the plan (which would impact other patients, clinicians, etc.). Second, the payer could increase the overall contributions or premium amounts necessary to make up for the new spending. This means employers, taxpayers, or other covered individuals in the plan will be expected to pay more to ensure a subset of patients get access to the new treatment.

For the pharmaceutical manufacturer, formulary inclusion means access to a larger pool of customers and increased sales of product. This may not necessarily reflect greater profitability, as a large insurance company may require overall price concessions (through rebates or discounts) from the manufacturer.

For society, gains may be realized through the improvement of health (as measured in total QALYs gained) in the population. Society may also benefit as healthier people may be more likely to contribute to the economy (ie: working, paying taxes, consuming goods).